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Not everyone can afford that dream home with their own given resources. But to their rescue are the most talked about home loans today. All banks thrive upon the market share they command in their loan portfolio, and why not with real estate becoming a very big ticket size purchase and financing has become a crucial part of the real estate decision. Given that this is a transaction that could last as long as 20 years, it’s important to get the right loan at the price that’s best for you and with the appropriate exit clauses

So what are the right choices in home loan which we have discussed below !!

Getting through a home loan process can be a real tough job. Once the choice of the lender is completed, there is the whole application, approval and disbursement process.

1.The Application Form

2.Processing Fee

3.Evaluation of Documents

4.Fixed interest Rate Home loan

5.Floating Rate

6.Field Investigation

7.Credit Appraisal and Loan Sanction

8.Offer Letter

9.Property Documents

10.Registration and Disbursement

The Application Form

The bank officer or the direct sales agent will usually help with filling the application form, but you need to have the supporting paperwork in place. The essential list includes a proof of identity, address, age and income, along with bank statements and income-tax returns. Photographs of yourself and a person who is a co-applicant are also needed. Always Keep multiple copies of each of these to save time.

Processing Fee

This is the charge you have to pay to the housing finance company to do the deal. The lending companies charge a processing fee in the range of 0.5-1% of the loan amount. In times of competitive lending, it is usually easy to get banks to save this cost or waive itt off totally, specially for large-ticket loans.

Evaluation of Documents

Once the form has been submitted along with the potential borrower for a personal discussion. The documents submitted by the applicant can gets checked and verified by the bank personnel. This is the stage when the borrower can negotiate the rate of interest with the lender.

Fixed interest Rate Home loan

As the name implies, the interest rate remains constant over the entire period of the loan, allowing the borrower to repaying fixed EMIs in this time. For instance, if a person has taken an Rs 50 lakh home loan from a bank at 12.5% per annum for a period of 10 years, she will have to pay a fixed EMI of Rs 73,188 every month throughout the tenor of the loan.

Floating Rate

The interest rate o loans under this system are supposed to fluctuate according to market levels. The peg used to be the benchmark prime lending rate (BPLR), or the rate at which a bank lends to its best customers. In practice, rates would rise in line with the market but declines weren’t always passed on to the borrowers. In practice, increased rates usually mean that the number of EMIs is raised. However, the peg ha now shifted to the base rate, which is more transparent. The base rate is the rate below which banks cannot lend. Customers can easily calculate the spread banks are charging over and above the base rate.

Field Investigation

The next step is field investigation by the lender. Representatives are sent to the home and office address listed on the application to authenticate the documents that have been submitted. This is part of the lender’s “know your customer” (KYC) process, aimed at reducing the chances of fraud. Get ready for calls from a different department, verifying if you really exist and checking on various entries on your bank statements. Scarcy to allow some stranger into your financial life so deeply, but that’s the only way to get that loan.

Credit Appraisal and Loan Sanction

The valuation of the property is the most important aspects that th bank considers before financing any property. The lending institution will decide the loan amount depending on the credentials of the potential borrowers. The bank can refuse your loan application if any discrepancy is found at this stage in the information you have provided. If the bank finds everything in order, loan is sanctioned at the end of this step.

Offer Letter

After the loan is sanctioned, the applicant gets an offer letter from the bank. This will contain details on the loan amount, the tenor, interest rate, mode of payment and so on. If the borrower agrees to the terms and conditions of the offer, she has to sign the duplicate copy of the letter and return it to the bank.

Property Documents

All legal documents relating to the property have to be submitted to the bank, which will hold on to them until the loan has been fully repaid. The bank will also conduct its own due diligence to ensure that the property compiles with all the legal requirements. It is a good idea to get a full set of duplicates and get them attested from a gazetted officer—just in case the bank loses the originals, you have a full set of papers that are almost as good.

Registration and Disbursement

After the registration of the property is completed and the final home loan agreement is signed, the final step is the disbursement of the loan. This will be full or part payment depending on the plan the borrower has opted for.

Conversion of loan :- A borrower can convert a floating-rate home loan into a fixed-rate one at no extra charge. The bank may charge a fee to convert a loan in the opposite direction. The conversion can be done at any point of time but check with your bank fpr the rules regarding this.

What is Interest Subvention Scheme

The government’s interest subvention scheme is part of its efforts to make housing affordable to all. This effectively means that the government will pick up part of the interest burden on home loan, subject to conditions. Finance minister Pranab Mukherjee announced the 1% subvention in the Budget on housing loans up to Rs 10 lakh where the cost of the house does not exceeds Rs20 lakh. This scheme is only available till 31 March 2011.

Are You interested in Pre-payment of Loan:

Pre-payment is paying off the loan before the tenor of the loan is over. For example, you may get a bonus from your workplace or get some lump sum as a gift and are able to repay a chunk of the loan outstanding. All good, except that when you go to do this, you may discover that you have to pay the bank something called a pre-payment penalty. Most banks now have a window for part pre-payment of loans twice a year or more where, for no charge, you can pre-pay chunks of the loan. Lending institutions are usually allow part pre-payment of up to 25% of the principal in a fiscal year without a penalty; anything more than that usually attracts a charge.

For full closure of the loan, most lenders charge a pre-payment penalty of about 2% of the loan outstanding, irrespective of whether the money is obtained through refinancing or the loan is being foreclosed by the borrow. There is an additional service tax that raises the pre-payment penalty to nearly 2.25%. Check with your bank for the exact pre-payment charge.

Borrowers sometimes face a dilemma when it comes to prepayment—should you foreclose or does it make sense to hold on to your cash and plough it into another investment avenue? Generally speaking, however, if you have the extra cash, don’t hesitate to prepay. In a high interest-rate cycle, borrowers should early because it will lead to savings.

Keeping this in mind, prospective borrowers should check with the lenders about pre-payment charges. There is really no guarantee, however, that banks won’t change the rules on this midway through the loan.